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        <li class="chapter " data-level="1.1" data-path="../">
            
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                    Introduction
            
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        <li class="chapter " data-level="1.2" data-path="../Lecture01/">
            
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                    Lecture 1: Introduction
            
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                    Lecture 2: Economics is a Social Science
            
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                    Section1: Economics is a Science – Methodology of Science (1): Refutability
            
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        <li class="chapter " data-level="1.3.2" data-path="Section02.html">
            
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                    Section 2: Economics is a Social Science
            
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        <li class="chapter " data-level="1.3.3" data-path="Section03.html">
            
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                    Section 3: Why Do We Need to Study Economics?
            
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        <li class="chapter " data-level="1.4" data-path="../Lecture03/">
            
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                    Lecture 3: Self-interest: the Postulate of Economics
            
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        <li class="chapter " data-level="1.4.1" data-path="../Lecture03/Section01.html">
            
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                    Section 1: Self-interest
            
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                    Section 2: The Postulate Needs not to be True
            
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                    Section 3: The Postulate of Self-interest Must be Followed
            
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                    Section 4: Rationality is not Equivalent to Correctness
            
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                    Section 5: The Consequences of Ignoring the Postulate of Self-interest
            
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                    Lecture 4: Scarcity, Competition, Market, and Non-market
            
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                    Section 1: Scarcity
            
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                    Section 2: Competition, Competition Criterion, and Game rule
            
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                    Section 3: The Postulate of Self-interest Must be Followed
            
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                    Lecture 5: Positive Economics and Normative Economics
            
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                    Section1: Positive economics
            
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                    Section 2: Normative economics
            
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                    Section3: Value Judgment
            
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                    Section 4: The Problems of Welfare Economics
            
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        <li class="chapter " data-level="1.7" data-path="../Lecture06/">
            
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                    Lecture 6: The History of Economic Thinking -- Microeconomics and Macroeconomics
            
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                    Section 1: From Classical Economics to Neoclassical Economics
            
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                    Section 2: The Rise and Decline of Keynesian Economics
            
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                    Section 3: Price Theory and Monetary Theory
            
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                    Section 4: The Causes of the Great Depression
            
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                    Section 5: More Truths about the Great Depression
            
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                    Lecture 7: Equilibrium•Optimum•Margin
            
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                    Section 1: Equilibrium and Optimum
            
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                    Section 2: The Concept of Margin
            
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                    Section 3: The Economic Implication of Marginal Analysis
            
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                    Lecture 8: The Law of Demand
            
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                    Section 1: The Law of Demand and its Key Points
            
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                    Section 2: Ceteris Paribus
            
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                    Section 3: The Explanation of “Buying on the upswing, Selling on the downswing” in the Stock Market
            
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                    Section 4: The Selection of Other Factors –Methodology of Science (2): Occam’s Razor
            
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                    Section 5: The Role of the Law of Demand as An axiom
            
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        <li class="chapter " data-level="1.10" data-path="../Lecture09/">
            
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                    Lecture 9: Supply Curve, the Theory of Supply and Demand, the Price Intervention by Government
            
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        <li class="chapter " data-level="1.10.1" data-path="../Lecture09/Section01.html">
            
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                    Section 1: The Supply Curve
            
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        <li class="chapter " data-level="1.10.2" data-path="../Lecture09/Section02.html">
            
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                    Section 2: The Theory of Supply and Demand
            
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                    Section 3: The Traditional Analysis of Price Control and Its Problem
            
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                    Section 4: Price Control Causes Transaction Cost to Increase
            
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                    Section 5: Minimum Wage Laws Cause Unemployment
            
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        <li class="chapter " data-level="1.10.6" data-path="../Lecture09/Section06.html">
            
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                    Section 6: The Consequence of Agricultural Price Supports
            
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        <li class="chapter " data-level="1.11" data-path="../Lecture10/">
            
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                    Lecture 10: Consumer Theory
            
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        <li class="chapter " data-level="1.11.1" data-path="../Lecture10/Section01.html">
            
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                    Section 1: Two Axioms of Consumer Theory
            
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        <li class="chapter " data-level="1.11.2" data-path="../Lecture10/Section02.html">
            
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                    Section 2: Use Value VS Utility — Methodology of Science (3): What is measure in science?
            
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        <li class="chapter " data-level="1.11.3" data-path="../Lecture10/Section03.html">
            
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                    Section 3: Indifference Curve
            
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        <li class="chapter " data-level="1.11.4" data-path="../Lecture10/Section04.html">
            
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                    Section 4: The Optimum of the Consumer
            
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        <li class="chapter " data-level="1.11.5" data-path="../Lecture10/Section05.html">
            
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                    Section 5: The Changes of the Optimum of the Consumer
            
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        <li class="chapter " data-level="1.11.6" data-path="../Lecture10/Section06.html">
            
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                    Section 6: Are there Giffen Goods?
            
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        <li class="chapter " data-level="1.11.7" data-path="../Lecture10/Section07.html">
            
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                    Section 7: From Individual Demand to Market Demand
            
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        <li class="chapter " data-level="1.11.8" data-path="../Lecture10/Section08.html">
            
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                    Section 8: Is There Theory of Elasticity?
            
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        <li class="chapter " data-level="1.12" data-path="../Lecture11/">
            
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                    Lecture 11: The Concept of Cost
            
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                    Section 1: Opportunity Cost
            
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        <li class="chapter " data-level="1.12.2" data-path="../Lecture11/Section02.html">
            
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                    Section 2: Historical Cost is not Cost
            
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        <li class="chapter " data-level="1.12.3" data-path="../Lecture11/Section03.html">
            
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                    Section3: The Disturbance of Historical Cost
            
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        <li class="chapter " data-level="1.12.4" data-path="../Lecture11/Section04.html">
            
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                    Section 4: The Laboratory in Economics
            
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        <li class="chapter " data-level="1.13" data-path="../Lecture12/">
            
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                    Lecture 12: The Concept of Rent
            
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        <li class="chapter " data-level="1.13.1" data-path="../Lecture12/Section01.html">
            
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                    Section 1: From Income and Cost to Rent
            
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        <li class="chapter " data-level="1.13.2" data-path="../Lecture12/Section02.html">
            
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                    Section 2: The Changeable Rent
            
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        <li class="chapter " data-level="1.13.3" data-path="../Lecture12/Section03.html">
            
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                    Section 3: The Concept of Rent from the First Perspective
            
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        <li class="chapter " data-level="1.13.4" data-path="../Lecture12/Section04.html">
            
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                    Section 4: The Concept of Rent from the Second Perspective
            
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        <li class="chapter " data-level="1.13.5" data-path="../Lecture12/Section05.html">
            
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                    Section 5: Profit
            
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        <li class="chapter " data-level="1.14" data-path="../Lecture13/">
            
                <a href="../Lecture13/">
            
                    
                    Lecture 13: Direct Cost and Overhead Cost
            
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        <li class="chapter " data-level="1.14.1" data-path="../Lecture13/Section01.html">
            
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                    Section 1: The Fallacy of Fixed Cost
            
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        <li class="chapter " data-level="1.14.2" data-path="../Lecture13/Section02.html">
            
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                    Section 2: Direct Cost and Overhead Cost
            
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        <li class="chapter " data-level="1.14.3" data-path="../Lecture13/Section03.html">
            
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                    Section 3: The Explanation of Producers’ Behaviors with Overhead Cost
            
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        <li class="chapter " data-level="1.14.4" data-path="../Lecture13/Section04.html">
            
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                    Section 4: The Principle of Rent Matching
            
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        <li class="chapter " data-level="1.14.5" data-path="../Lecture13/Section05.html">
            
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                    Section 5: The Form of Contract Affects Overhead Cost
            
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        <li class="chapter " data-level="1.15" data-path="../Lecture14/">
            
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                    Lecture 14: Transaction Cost
            
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        <li class="chapter " data-level="1.15.1" data-path="../Lecture14/Section01.html">
            
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                    Section 1: Transaction Cost is Indispensable
            
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        <li class="chapter " data-level="1.15.2" data-path="../Lecture14/Section02.html">
            
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                    Section 2: The History of Transaction Cost
            
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        <li class="chapter " data-level="1.15.3" data-path="../Lecture14/Section03.html">
            
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                    Section 3: From the Special Transaction Cost to the General Transaction Cost — Methodology of Science (4): Ad Hoc Theory
            
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        <li class="chapter " data-level="1.15.4" data-path="../Lecture14/Section04.html">
            
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                    Section 4: The Perspective of Contract
            
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        <li class="chapter " data-level="1.16" data-path="../Lecture15/">
            
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                    Lecture 15: Market Structure – Price-Taking
            
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        <li class="chapter " data-level="1.16.1" data-path="../Lecture15/Section01.html">
            
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                    Section 1: The Definition of Price-Taking
            
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        <li class="chapter " data-level="1.16.2" data-path="../Lecture15/Section02.html">
            
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                    Section 2: The Optimum of Producers
            
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        <li class="chapter " data-level="1.16.3" data-path="../Lecture15/Section03.html">
            
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                    Section 3: The Law of Diminishing Marginal Product
            
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        <li class="chapter " data-level="1.16.4" data-path="../Lecture15/Section04.html">
            
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                    Section 4: Average Cost
            
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        <li class="chapter " data-level="1.16.5" data-path="../Lecture15/Section05.html">
            
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                    Section 5: The Theory of Supply and Demand with Production
            
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        <li class="chapter " data-level="1.16.6" data-path="../Lecture15/Section06.html">
            
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                    Section 6: Consumer Surplus and Producer Surplus
            
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        <li class="chapter " data-level="1.17" data-path="../Lecture16/">
            
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                    Lecture 16: Market Structure – Price-Searching
            
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                    Section 1: The Definition of Price-Searching
            
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                    Section 2: The Cause of Monopoly (I): Innate Talent
            
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                    Section 3: The Cause of Monopoly (II): Acquired Construction
            
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                    Section 4: The Ambiguous Antitrust Law
            
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                    Section 5: Administrative Monopoly
            
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                    Section 6: The Deadweight Loss of Monopoly
            
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                    Section 7: Turning Consumer Surplus to Producer Surplus
            
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                    Section 8: The Other Price Arrangements to Eliminate Deadweight Loss
            
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                    Section 9: Quality Competition
            
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                    Section 10: Cartels
            
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                    Section 11: The Fallacy of Game Theory
            
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        <li class="chapter " data-level="1.18" data-path="../Lecture17/">
            
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                    Lecture 17: Information Cost
            
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                    Section 1: Information Cost in Society
            
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                    Section 2: The Behaviors Reducing Information Cost
            
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        <li class="chapter " data-level="1.18.3" data-path="../Lecture17/Section03.html">
            
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                    Section 3: The Behaviors Increasing Information Cost
            
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                    Section 4: The Price-Searching Caused by Information Cost
            
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                    Section 5: Replacing Risk with Information Cost
            
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                    Section 6: Insurance
            
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        <li class="chapter " data-level="1.18.7" data-path="../Lecture17/Section07.html">
            
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                    Section 7: Adverse Selection and Moral Hazard
            
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        <li class="chapter " data-level="1.18.8" data-path="../Lecture17/Section08.html">
            
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                    Section 8: The Extremely Low Rate of Return of Social Pension Insurance
            
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                    Section 9: SOP is An Irrelevant Answer
            
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                    Lecture 18: The Theory of Interest
            
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                    Section 1: The Causes of Interest
            
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                    Section 2: Interest Rate
            
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                    Section 3: The Discount Formula
            
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                    Section 4: From Asset to Capital, Annuity, Investment and Saving
            
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                    Section 5: The Separation Theorem
            
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                    Lecture 19: Monetary Theory
            
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                    Section 1: The Functions of Money
            
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                    Section 2: The Value of Good VS the Value of Money
            
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                    Section 3: The Cause of Inflation
            
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                    Section 4: The History of Money
            
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                    Section 5: The Harm of Inflation and Deflation
            
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                    Section 6: The History of Paper Money
            
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                    Section 7: The Truth of Bretton Woods System
            
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                    Section 8: The Quantity Theory of Money
            
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                    Section 9: Money Multiplier
            
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                    Section 10: The Monetary Policy Tools of Central Bank
            
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                    Section 11: The Difficulty in the Target of Monetary Policy
            
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                    Section 12: The Formation of Zhu’s Monetary System
            
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                    Section 13: From the Monetary Policy Regulating Economy to the Monetary System Stabilizing Money Value
            
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                    Section 14: The Monetary System Pegging Money to the Price Index of a Basket of Tradable Goods
            
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                    Lecture 20: Income Distribution, Wage Contract, Unemployment
            
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                    Section 1: Income Distribution: Marginal Productivity Theory
            
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                    Section 2: Wage Contract
            
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                    Section 4: The Causes of Unemployment
            
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                    Section 5: Natural Rate of Unemployment
            
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                    Lecture 21: The Critique on Keynes’s Theory of National Income Determination
            
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                    Lecture 22: Business Cycle and Economic Growth
            
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                    Lecture 23: Coase Theorem
            
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                    Lecture 24: Externality
            
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                    Lecture 25: Rent Dissipation
            
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                    Section 4: Rent Dissipation as a Mode of Thinking
            
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                    Lecture 26 Political Economics
            
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                                <h1 id="section1-economics-is-a-science-&#x2013;-methodology-of-science-1-refutability1">Section1: Economics is a Science &#x2013; Methodology of Science (1): Refutability<sup><a href="#fn_1" id="reffn_1">1</a></sup></h1>
<p>Economics is a science. Science is an activity of human intelligence. It starts from one or several postulates or axioms from which a set of theories and inferences are established as a system. Besides, all the conclusions of this theoretical system must be tested by fact.</p>
<p>This definition of &#x201C;Science&#x201D; can be divided into three stages also known as &#x201C;Trilogy of Science&#x201D;.</p>
<p>The first stage is postulates and axioms, which is the starting point of science. It does not need proof; neither needs to be true; it just needs to be accepted without any doubts. Sceptics doubt everything including those as a starting point. But what can be done without a starting point?</p>
<p>The second stage is a logical deduction. Mathematics as a tool assisting logical deduction may be useful for science. However, Math is not science itself, but a useful tool for the second stage of science.</p>
<p>The third stage is the fact test, which makes the distinction between science and math: there are only the previous two stages in math (Geometry is a typical instance). Without this third stage, math is not science. Since the first stage of science needs no proof and does not allow any doubts, it seems very arbitrary and even unreasonable. Then how can be it sure to be OK? That is why science needs the support of fact in the third stage.</p>
<p>It is the third stage that distinguishes science from math. Therefore, an essential feature of science is not provability, but refutability. That is, fact can refute it<sup><a href="#fn_2" id="reffn_2">2</a></sup>.</p>
<p>There is a serious and rather common misunderstanding about science that should be clarified. The public usually presumes that science is equivalent to truth. This is a misconception as they are totally different. A statement with refutability is scientific; otherwise, it is non-scientific. The false is the refuted but the truth is not the unrefuted. Therefore, it is not contradictory to say science is false and non-science is true.</p>
<p>Let us consider this example of unscientific truth: a four-footed animal has four feet. It is impossible to find a fact to refute this statement, which means it is absolutely true. However, what is irrefutable is exactly unscientific. Think about it deeply; why is that the statement cannot be falsified or refuted? Because the former part of it just repeats the latter part. In other words, A is B, so B is A. Such un-scientific, but true statement is called tautology which means repetition. Human study science in order to discover new knowledge, but tautology does not add any new knowledge; instead, it only repeats what already established. That is why tautology is absolutely true but becomes unscientific.</p>
<p>Tautology is not the only case of irrefutable statements. There are also four kinds of unscientific statements: unreality, ambiguity, contradiction and unrestrained.</p>
<p>The statement of &#x201C;God exists.&#x201D; is unscientific; instead, it is associated more with religion. The question here is why so? This is because the concept of God is not a fact, and it cannot be tested by facts, which leads to irrefutability.</p>
<p>Seen from another point of view, the concept &#x201C;God&#x201D; is ambiguous, which also leads to irrefutability. Superstition, which is somewhat similar to religion, tries to avoid being refuted with ambiguity. </p>
<p>Here is a story: Three students go to take an important public examination. They meet a fortune-teller on the road, so ask him to predict their examination results. The fortune-teller just raises a finger and says nothing. </p>
<p>Possible outcomes: If one of them passes the examination, that one-finger means one succeeds. If two of them pass, it means one of them fails. If all of them pass or do not pass, it means they as a group succeed or fail<sup><a href="#fn_3" id="reffn_3">3</a></sup>. Whatever the result will be, the fortune-teller can redefine the ambiguous meaning of the one-finger to make sure he is always right. However, it is unscientific precisely because it is irrefutable.</p>
<p>The statement of &#x201C;There is a black point on an all-white wall.&#x201D; is also unscientific. With this contradiction, the conclusion of &#x201C;The wall is a god&#x201D; will be deducted. Is it only an omnipotent god who can be both black and white?</p>
<p>In a math class at middle schools, they teach that a statement and its contrapositive are logically equivalent. However, only a few know that it is also the way of testing science.</p>
<p> If &#x201C;A &#x21D2; B&#x201D; is tested, then &#x201C;not (B) &#x21D2; not (A)&#x201D; instead of &#x201C;not (A) &#x21D2; not (B)&#x201D;should be used. </p>
<p>By analogy if &#x201C;A &#x21D2; B and C&#x201D; is tested, then &#x201C;not (B) &#x21D2; not (A)&#x201D; and &#x201C;not (C) &#x21D2; not (A)&#x201D; should be used. If &#x201C;A &#x21D2; B, C, D&#x2026;&#x201D; is tested, because there are limitless propositions deduced from A, the test about A are endless, and become irrefutable. It is not easy to find a simple case to illustrate this situation of unrestrained, which will be pointed out when it occurs.</p>
<p>&#x201C;Scientific faults&#x201D; are refutable statements and have been refuted by facts. For example; there are two conflicting theories of Heliocentric and Geocentric on the relationship between sun and earth.</p>
<p>Which of them is true? How to test them? Copernicus argued that if Heliocentric were true, then Venus would be waxing and waning like the moon, which is &quot;A &#x21D2; B&quot; where A is Heliocentric, and B is the Venus&apos; phase. So the test condition for this statement is that if the Venus were not waxing and waning, Heliocentric would be false, which is &quot;not (B) &#x21D2; not (A)&quot;. Heliocentric can present a refutable condition, so it is scientific. On the other hand, Geocentric can also present its refutable condition: if the Venus were waxing and waning, Geocentric would be false, so it is scientific too. Afterwards, Galileo observed with a telescope, found that the Venus does be waxing and waning, which refuted Geocentric and supported Heliocentric. Then Geocentric is scientifically false because it has been refuted though it is reputable. By contrast, Heliocentric is not only refutable but also true, because the observation of Galileo does not refute it. &quot;Refutability&quot; is the characteristic of science, while &quot;Refuted&quot; is the end of false theories, which should not be confused with each other.</p>
<p>Thus human observes the reality, exact the laws out of facts, then make up science theories which can be used to explain what has happened and predict what will happen. If the explanations and predictions have not been refuted by facts, then theories can be accepted as true. But if they are refuted, the theories need to be revised, or even abandoned entirely.</p>
<p>The example of Heliocentric illustrates that the theories accepted as true are not true. More accurately speaking, they are just not refuted for now, which does not mean that they will never be refuted in the future, because they are always refutable in science. In fact, with the development of Astronomy, Heliocentric theory has been revised from the idea that all planets, including the Earth, move around the Sun from the centric orbits to the oval orbits. Now the heliocentric theory has been abandoned and replaced by the theory of cosmic expansion because the sun is no longer believed as the center of the Universe.</p>
<p>Logics also deny that science or refutable theories can be absolutely true. For example, even human has seen thousands of white swans and find no one is black; still, they cannot conclude that there are no black ones in the world. The statement &#x201C;all swans are white&#x201D; can be accepted as true, but just for now.
Of course, only scientifically true theories are desirable, because they can increase human&#x2019;s knowledge and guide the practice. As mentioned above, it is the same for explaining what has happened and predicting what will happen. In practice, human firstly tries to explain what has happened to construct theories, then with which predict what will happen by observing if the predictions come true, human test the theories again and again.</p>
<p>It seems rather abstract, so let us take examples to illustrate the above interpretation. In Physics, Newton&#x2019;s laws explain or deduct the phenomenon of an apple falling on the ground. They are accepted as true because we never see an apple flying to the sky. Airplanes that can fly to the sky are invented, which does not violate but apply Newton&#x2019;s laws. As long as the conditions required by Newton&#x2019;s laws are satisfied, airplanes never fall from the sky, which proves the laws are true. </p>
<p>So, why is Economics scientific?</p>
<p>Economics is a set of systematic theories deduced from a postulate which is &#x201C;human are all self-interested&#x201D;, and an axiom which is the Law of Demand. Economics can be used to explain some phenomena that cannot be explained by Physics. For example, there is a $100 bill in a public place. Physics can explain why it is gone with the wind. However, it cannot explain why the bill is still gone without wind which only can be explained by economics.</p>
<p>The Theory of Supply and Demand (TSD) introduced in later lectures argues that the price will rise if the demand exceeds the supply, while the price will fall if the supply exceeds the demand. As long as the conditions required by the TSD are satisfied, it has never been refuted. If the government imposes price control, forbidding sellers to increase prices when the demand exceeds supply, it seems that the price does not rise, but it does in the other form, such as the time spent on queuing and the red pockets paid as bribe. The logic is similar to the fact of airplanes flying to the sky does not violate Newton&#x2019;s laws. So, it just proves that the TSD is true again. </p>
<hr>
<blockquote id="fn_1">
<sup>1</sup>. This section introduces the key points of MS. Those who are interested in it should read such masterpieces as &#x201C;The Logic of Scientific Discovery&#x201D; (Karl Popper, 1902-1994) and &#x201C;The Philosophy of Natural Science&#x201D; (Carl G. Hempel, 1905-1997). <a href="#reffn_1" title="Jump back to footnote [1] in the text."> &#x21A9;</a>
</blockquote>
<blockquote id="fn_2">
<sup>2</sup>. Here &quot;Science&quot; is a narrow-sense concept. Some scholars call those subjects without refutability, such as Logics and Mathematics, as &quot;Formal Science&quot;, while those with refutability as &quot;Empirical Science&quot;. That concept of science is a broad-sense one. This book use &#x201C;Science&#x201D; in narrow-sense which is refutable, i.e. &quot;Empirical Science&quot;.<a href="#reffn_2" title="Jump back to footnote [2] in the text."> &#x21A9;</a>
</blockquote>
<blockquote id="fn_3">
<sup>3</sup>. In Chinese, the word &#x201C;one&#x201D; can be used to mean a person or a group of people altogether.<a href="#reffn_3" title="Jump back to footnote [3] in the text."> &#x21A9;</a>
</blockquote>

                                
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